TOCs want action to limit reputational risk

Concerns follow furore over the collapse of the East Coast franchise, which saw Stagecoach/Virgin ‘unfairly’ accused of receiving a taxpayer ‘bail out’

The issue was raised during the furore over the forthcoming collapse of the East Coast franchise

Train operators have asked the Department for Transport to review its approach to publicising rail franchise awards to provide more accurate information to the public and prevent reputational damage to the industry.

The issue was raised during the furore over the forthcoming collapse of the East Coast franchise which opposition politicians and the media portrayed as Stagecoach/Virgin walking away from planned premium payments of £3.3bn to the government over the life of the contract.

Some transport groups have expressed concerns over the potential for further negative publicity should the DfT make large payments to operators following the reintroduction of revenue support arrangements designed to prevent new franchises collapsing if patronage falls significantly below expected levels.

Operators have suggested that DfT announcements on future franchise awards should make clear that they are limited liability contracts and that the headline premium payment is a maximum the government could receive rather than a guarantee. When new revenue support measures are introduced, they have suggested that the DfT should also state that government and operators share the financial risk of revenue falling below forecast and that the arrangement is designed to provide a stable environment for the industry to introduce new trains and customer service improvements.

I would say the premium should not be presented as a guarantee. Publicly it may be better to present it as a possible range

“These questions have been raised,” a senior rail industry executive told Passenger Transport. “I would say the premium should not be presented as a guarantee. Publicly it may be better to present it as a possible range and say if things work out well the government may receive a certain amount, less if they do not. It should also be made clear that contracts are designed for the public and private sectors to work together to deliver investment and customer service enhancements in a way that represents value to the taxpayer.”

Operators acknowledge that it would be challenging for the DfT to explain a franchise’s contractual arrangements to the public. However, they believe it could reduce potential media hostility to any future revenue support payments.

“It’s a message that is quite politically difficult to deliver and quite difficult for the man on the street to understand, especially when there have been shrill noises coming from the left of the political spectrum saying Stagecoach is being bailed out,” Passenger Transport was told. “That is frankly nonsense and it doesn’t aid the debate on what is the best way to structure these contracts to deliver customer service in a way that is best for taxpayers and passengers.”

The risk of further adverse publicity over companies receiving ‘bail outs’ is evident in the revenue support arrangements for the forthcoming Southeastern franchise, which will be available to the new operator 12 months after the contract starts. The short period of operating the new contract under full revenue risk reflects the possibility of patronage falling below forecast levels rapidly if a hard Brexit were to lead to jobs in the City of London transferring to European financial centres. It also reflects current uncertainty over future demand for rail travel (PT181).